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Baystate Health Announces Rural Wage Impact & Fiscal Response Plan

August 12, 2016

I want to provide you with an update on our financial situation as we near the end of our current fiscal year, and as we realize the impact of the so-called “rural wage” decision on Baystate Health.

For the fiscal year beginning Oct. 1, 2016, Baystate Health is facing a budget gap of $75 million. This number is the difference between our FY2017 budgeted operating margin, needed to sustain and re-invest in critical services throughout our health system, and our current anticipated financial performance.

Many factors are causing this projected shortfall, most significantly the continuing shortfalls in the reimbursements we receive for providing Medicaid services. Other factors are also contributing to this challenge; most prominently the recent decision by the Centers for Medicare and Medicaid Services not to accept corrected wage data resulting in $23 million in reduced Medicare reimbursements next year as well as increased spending on wages and benefits, pharmaceutical costs and malpractice insurance.

Our leadership team, working with many colleagues across the organization, has identified almost $40 million in strategies to mitigate these impacts and reduce our budget gap from about $75 million down to $35 million. We must take steps to address this sizable remaining gap if we are to continue to play our critical role in the health and wellbeing of our community.

The most difficult—but necessary—part of our work ahead will be a reduction in our workforce. As of today we expect that in the coming weeks we will eliminate approximately 300 positions from our current workforce of about 12,500 employees. We expect that these reductions will affect management as well as frontline team members, prioritizing non-clinical areas for reductions, and most importantly preserving the quality and safety of the care we provide. We expect the majority of these reductions will take place in Springfield-based operations, but we anticipate some impact throughout many parts of Baystate Health. As we know more specifics about impact on teams and individuals, we will share them. Those affected by this decision will have full access to severance and the Baystate Health Workforce Placement & Transition Policy, and may apply for open positions of critical need within Baystate Health.

Even after these painful steps we expect to face a remaining budget gap of $15 million. We’ll continue our work to address this gap and do all we can to preserve jobs.

Our leadership has worked hard, as our financial challenges have mounted in recent months, to minimize the impact of these challenges. We are doing everything we can to help our elected leaders change some of the long-standing disparities in Medicaid reimbursement between different provider organizations in Massachusetts, which have been a major driver of our current difficulties.

As a not-for-profit charitable organization, we remain committed to our mission to care for all who need us, and committed to our community hospitals and health facilities in western Massachusetts at a time when many such facilities are unable to survive on their own. In making these difficult decisions, we are working to preserve the critical services that our patients and communities need, as close to home as possible, whether it’s advanced tertiary care at Baystate Medical Center or community care at our facilities throughout the region.

Thank you for your ongoing support and for helping us sustain our mission for all we serve.